Areva - Reference Document 2016

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RISK FACTORS

4.4 Industrial and environmental risks

As is done for nuclear safety, the measures taken are based on the concept of defense in depth and rest on three interrelated pillars forming a strong and interconnected whole, which are: p physical protection to avert, detect, prevent or delay any unauthorized access to the nuclear materials or any act of sabotage that might endanger the public; p physical monitoring, in which movements of nuclear materials require authorization and are monitored; p a materials accounting system distinct from physical monitoring, which provides independent control based on the daily accounting of quantities of materials held in each area of the site and of all movements of nuclear materials from one area to another. The competent authorities, including for France inspectors reporting to the Senior Defense and Security Official of the Ministry of Environment, Energy and Oceans, regularly verify compliance with and proper application of these measures. NON-PROLIFERATION Proliferation is the diversion of nuclear materials by a State for non-peaceful purposes. Non-proliferation is a shared objective of all of the signatory countries of international agreements in this area, in particular the Treaty on the Non-Proliferation of Nuclear Weapons of July 1, 1968. Non-proliferation requirements relate to the physical protection of nuclear materials per the Convention on the Physical Protection of Nuclear Material; to safeguards controls per the Euratom treaty, which established a nuclear materials accounting system; and to inspection by the IAEA and Euratom. To meet national regulatory requirements for nuclear materials safeguards and facility protection, AREVA takes every measure necessary in this field to know, at all times, the amount, type, use and location of thematerials held by the group’s entities. 4.4.1.7. As operators of regulated nuclear facilities ( installation nucléaire de base, INB) and industrial facilities covered by legislation on environmentally regulated sites ( installation classée pour la protection de l environnement, ICPE), the group’s legal entities have an obligation to ensure the safety and dismantling of those facilities during their final shutdown, in whole or in part; to remediate the sites; and tomanage the products resulting from these operations. Similarly, operators of uraniummines have an obligation to perform closure work, safety-related work and rehabilitation of the mines after their operations have ceased. The group plans for the dismantling of its new facilities from the beginning of the design phase. Operating experience from facility maintenance, from dismantling operations carried out for its own account or for that of other nuclear operators, and from pilot projects conducted upstream contribute to the safety of dismantling operations. Computer programs were developed to facilitate the adoption of new traceability standards, thus reducing the research necessary for characterization at the end of operations (radiological, physico-chemical, etc.) as well as the impacts of dismantling work. In France, the lawprovides amechanism for ensuring that the operators of INBs have sufficient assets to fund long-termexpenses associatedwith the dismantling of these facilities and/or the management of used fuel and radioactive waste. In the United States, the Decommissioning Funding Plan (DFP) is updated every three years. 4.4.1.8. RISKS RELATED TO END-OF-LIFECYCLE OPERATIONS

Future expenses associated with the end-of-lifecycle operations of nuclear facilities and with the remediation of regulated industrial facilities have been identified, and specific provisions have been constituted by the legal entities which operate those facilities. Rules related to provisions for end-of-lifecycle operations are described in Section 20.2. Notes to the consolidated financial statements , note 13. End-of-lifecycle operations. The present value of end-of-lifecycle provisions was 7.172 billion euros at December 31, 2016; earmarked assets had a market value of 6.357 billion euros at that same date, giving a coverage ratio of 89%. Provisions for end-of-lifecycle expenditure are based on the group’s estimates of future costs, which are by nature based on assumptions (see Section 20.2. Notes to the consolidated financial statements , note 13. End-of-lifecycle operations ). However, it cannot be stated with certainty that the provisions currently set up will be in line with the actual costs ultimately borne by the group, which could be higher than initially estimated, due in particular to changing legislation and regulations applicable to nuclear operations and environmental protection, to their interpretation by the courts, and to developments in scientific and technical knowledge. These costs also depend on regulatory decisions, in particular concerning dismantling methods, and on the choice and cost of solutions for the final disposal of certain types of radioactive waste (see Section 20.2. Notes to the consolidated financial statements , Note 25. End-of-lifecycle operations ). It is therefore possible that these future obligations and potential expenses or potential additional future liability of a nuclear or environmental nature that the group may later have to bear could have a significant negative impact on its financial position. The main disruptive risks which could have a significant impact on the cost of end-of-lifecycle liabilities are: p differences between the initial estimated condition of legacy facilities and waste and their actual condition, as observed during preliminary operational investigations of the facilities; p changes in regulations or policies, particularly with respect to the target final condition of the facilities and soils after dismantling or the requalification as waste of radioactive materials currently still considered to be reusable; p the appreciable increase in radioactive waste packaging and disposal costs, particularly for waste destined for geologic disposal (cost of the future Cigéo geologic repository) and for waste for which no final disposal method has yet been identified. The group holds a portfolio of financial assets (equities, bonds, investment funds and third-party receivables) to fund its future end-of-lifecycle obligations. Because the coverage ratio for end-of-lifecycle liabilities was less than 100% at December 31, 2016, the group has adopted the assumption of an addition to the earmarked fund of approximately 800 million euros in 2017 in order to return to a 100% coverage ratio in 2017, in particular by means of the announced capital increase. Reaching the 100% coverage ratio will also depend on market conditions, which cannot be anticipated (discount rate and yield of earmarked funds recognized at the end of 2017). However, despite the group’s prudent management strategy for earmarked assets, outside economic factors may have an unfavorable impact on the ratio of coverage of end-of-lifecycle liabilities by earmarked assets, and thus the group’s financial position. They include: p the unfavorable behavior of financial markets, introducing the risk of a lower yield from the assets than in the assumptions; in particular, the value of the portfolio of securities could decline and/or provide lower yields than is ultimately necessary to cover expenses related to end-of-lifecycle obligations, due to the risk of volatility inherent in capital markets;

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2016 AREVA REFERENCE DOCUMENT